Pound Euro Exchange Rate Undermined by Northern Ireland Border Tensions
(Updated 14:20, 6/9/21) The Pound Euro (GBP/EUR) exchange is trading with some modest losses this afternoon, as GBP investors are spooked by the threat of renewed Brexit tensions between the UK and EU.
This comes in the wake of reports that the UK government is set to announce that it will unilaterally extend delays to border checks in the Irish Sea later this week.
The move is likely to anger Brussels, with EU officials previously threatening to take legal action against the UK when the government sought to extend the grace period earlier in the year, the previous spat also resulting in some pressure on the Pound Euro exchange rate.
At the same time, the Euro is only seeing limited gains this afternoon, as a buoyant US Dollar (USD) caps demand for the single currency, courtesy of the strong negative correlation between the pairing.
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Pound Euro Exchange Rate Trades Narrowly on German Data
The Pound Euro (GBP/EUR) exchange rate is rangebound this morning, with the pairing holding steady following an unexpected jump in German factory orders in July.
At the time of writing the Pound Euro exchange rate is trading at around €1.1664, virtually unchanged from this morning’s opening rate.
Euro (EUR) Steady Following Unexpected Surge in German Factory Orders
The Euro (EUR) is holding its ground against the Pound (GBP) this morning, following the publication of Germany’s latest factory orders release.
According to data released by Germany’s federal statistics agency, Destatis, German factory orders grew 3.4% in July, down from an upwardly revised 4.6% in June, but well ahead of forecasts for a 1% contraction.
The unexpected expansion of order growth appeared to be driven by some ‘big ticket’ orders from outside the EU, primarily from the ship building sector.
July’s solid figures point to a strong start for Germany’s vital manufacturing sector in the second half of 2021, although there are concerns that supply issues could hinder manufacturer’s ability to deliver these orders.
Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said:
‘These data continue to signal barnstorming demand in German manufacturing, even if production isn’t responding due to supply-side constraints.’
The positive factory order release is helping to offset the release of the latest Sentix Eurozone investor sentiment index this morning, which fell to its lowest levels since May 2020.
Pound (GBP) Muted as UK Data Highlights Supply Chain Concerns
At the same time, the Pound (GBP) is stuck in a narrow range this morning as some low impact UK data releases have highlighted how the UK’s supply chain issues are already impacting economic activity.
The UK’s latest car sales figures and construction PMI were both hit by supply chain constraints, with ongoing material shortages made worst by the UK’s current HGV driver shortage.
This in turn has reinforced uncertainty over the UK’s economic resilience in the second half of the year, with these supply issues, coupled with staff shortages raising concerns that the country’s economic recovery could be stymied in the coming months.
Pound Euro Exchange Rate Forecast: Downbeat German ZEW Survey to Weaken the Euro?
Looking ahead to tomorrow’s session, the Pound Euro (GBP/EUR) exchange rate might find some support on the back of Germany’s latest ZEW economic sentiment index.
Economists forecast that economic morale in the Eurozone’s largest economy will have continued to slump this month to strike its worst levels since the start of the coronavirus pandemic last year.
However, any pullback is likely to be capped ahead of the European Central Bank’s (ECB) upcoming rate decision on Thursday, amidst speculation the ECB could use this month’s policy meeting to announce a reduction to its emergency pandemic-era bond purchases.
Meanwhile, in the absence of any notable GBP data releases until the publication of the UK’s latest GDP figures on Friday, movement in the Pound may prove limited, especially as